Want Some Exposure To China's Growth? Stifel Says Buy JD Or Alibaba

China is without any doubt the largest eCommerce market in the world with the two biggest players being Alibaba Group Holding Ltd BABA and JD.Com Inc(ADR) JD.

The Analyst

Stifel's Scott Devitt resumed coverage of JD's stock with a Buy rating and $48 price target and reaffirmed Alibaba's stock with a Buy rating with an unchanged $210 price target.

The Thesis

The Chinese eCommerce market is expected to exceed $1 trillion worth of sales by 2019, which bodes well for the two largest players, Alibaba and JD.com, Devitt said in a note. Both companies are "well-managed and well-positioned leaders" and managed to effectively Amazon.com, Inc. AMZN from flexing its muscles in China.

Among the two giants, JD is more structured with a controlled logistics and a business model that shifted from first-party towards a hybrid first-party/third party model, the analyst said. This should help the company triple its market share from 6 percent in 2013 to 18 percent by the end of 2017. Moreover, third-party sales should exceed 50 percent of the company's total gross merchandise volume in the next few years that would generate a boost in operating margin.

"We have taken a stance within our coverage of favoring global eCommerce stocks over U.S. online media stocks due to various factors, including the recent focus on media's possible negative impact on society," Devitt said. "We expect JD to continue to gain share of the retail market it serves for years to come, generating excess stock returns."

Price Action

Shares of JD were trading higher by nearly 5 percent at $40.65 Wednesday afternoon. Shares of Alibaba were trading higher by 1.7 percent at $176.43.

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